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INTERIM STUDY REPORT
Pension Oversight Committee
Representative Randy McDaniel, Chairman
Oklahoma House of Representatives
Interim Study 11-041, Representative Randy McDaniel
January 19, 2012
Plan Design Choices for State Retirement Systems
J. Dudley Hyde, Esq.
McAfee & Taft
dudley.hyde@mcafeetaft.com
 Mr. Hyde does not currently work with any of Oklahoma’s pension plans, but has been involved with the issue of public sector retirement benefits for nearly 40 years. Over this period of time, pension plans have experienced significant changes.
 In 2002, Oklahoma State University (OSU) and The University of Oklahoma (OU) began offering both a defined benefit (DB) plan and an enhanced defined contribution (DC) plan to new employees. Since these DC options were started, results show that new OSU employees opt in to the DC plan roughly 50% of the time and new OU employees opt in approximately 70% of the time. OSU and OU have reduced their liabilities by offering the DC plan.
 Mr. Hyde discussed the difference between private sector plans subject to the Employee Retirement Income Security Act (ERISA) and public plans that are not under these regulations, suggesting that ERISA creates a funding discipline for private sector plans that does not exist in the public sector plans.
 Public sector pension plans are under increased scrutiny from groups like the Governmental Accounting Standards Board (GASB). New GASB standards effective in June 2013 will focus on cost sharing and will require those participating in a plan to book their allocable share of the overall liability. For example, OU will need to show their share of the Teachers’ Retirement System of Oklahoma liability on their financial statements. This GASB change may or may not affect borrowing costs, depending on how the market views the situation.
 Mr. Hyde suggested the consideration of alternative retirement plan arrangements, including migration to DC plans, and noted that a public entity does not have to provide the exact benefit previously offered when the new plan is established.
 Mr. Hyde also suggested development of good governance policies.
John Manning, Vice President of Employee Benefits and Payroll
ONEOK
jmanning@oneok.com
 ONEOK assumes a discount rate of 5.5%, which is significantly lower than the discount rates of the Oklahoma pension plans which are between 7.5% and 8.0%. Changes in the discount rate have greatly affected the funding levels at ONEOK and the required funding amount each year.
 Mr. Manning suggested that requiring entities to carry larger liabilities on their balance sheets may affect the entity’s ability to access the capital market.
 ONEOK moved from a DB plan to a 401(k) style plan, which transferred risk to the employee. To help with the transition and to encourage young employees make arrangements for their

INTERIM STUDY REPORT
Pension Oversight Committee
Representative Randy McDaniel, Chairman
Oklahoma House of Representatives
Interim Study 11-041, Representative Randy McDaniel
January 19, 2012
Plan Design Choices for State Retirement Systems
J. Dudley Hyde, Esq.
McAfee & Taft
dudley.hyde@mcafeetaft.com
 Mr. Hyde does not currently work with any of Oklahoma’s pension plans, but has been involved with the issue of public sector retirement benefits for nearly 40 years. Over this period of time, pension plans have experienced significant changes.
 In 2002, Oklahoma State University (OSU) and The University of Oklahoma (OU) began offering both a defined benefit (DB) plan and an enhanced defined contribution (DC) plan to new employees. Since these DC options were started, results show that new OSU employees opt in to the DC plan roughly 50% of the time and new OU employees opt in approximately 70% of the time. OSU and OU have reduced their liabilities by offering the DC plan.
 Mr. Hyde discussed the difference between private sector plans subject to the Employee Retirement Income Security Act (ERISA) and public plans that are not under these regulations, suggesting that ERISA creates a funding discipline for private sector plans that does not exist in the public sector plans.
 Public sector pension plans are under increased scrutiny from groups like the Governmental Accounting Standards Board (GASB). New GASB standards effective in June 2013 will focus on cost sharing and will require those participating in a plan to book their allocable share of the overall liability. For example, OU will need to show their share of the Teachers’ Retirement System of Oklahoma liability on their financial statements. This GASB change may or may not affect borrowing costs, depending on how the market views the situation.
 Mr. Hyde suggested the consideration of alternative retirement plan arrangements, including migration to DC plans, and noted that a public entity does not have to provide the exact benefit previously offered when the new plan is established.
 Mr. Hyde also suggested development of good governance policies.
John Manning, Vice President of Employee Benefits and Payroll
ONEOK
jmanning@oneok.com
 ONEOK assumes a discount rate of 5.5%, which is significantly lower than the discount rates of the Oklahoma pension plans which are between 7.5% and 8.0%. Changes in the discount rate have greatly affected the funding levels at ONEOK and the required funding amount each year.
 Mr. Manning suggested that requiring entities to carry larger liabilities on their balance sheets may affect the entity’s ability to access the capital market.
 ONEOK moved from a DB plan to a 401(k) style plan, which transferred risk to the employee. To help with the transition and to encourage young employees make arrangements for their